Why are "housing starts" such a key economic indicator?

But it indicates that people want to move from apartments into houses, which indicates a stable economy, with interests rates low enough to attract first-time buyers, but not so low that the banks can't turn a profit.

It also generates jobs, as it takes a lot to build a house, but you are right in that you need to balance it, or the bank ends up being in the housing business

More specifically the usage of housing start information as an economic indicator is an optimistic tool to spark activity and or generate movement in the housing sector. Businesses directly and indirectly dependent upon housing use "housing starts" to advertise for investment in real property development.

Historically real property ownership has been a bench mark standard of value. Industrial and Technical advancements have turned the parameters of capital growth on end. There is more cash in the marketplace for exchange of value for goods and services than there is real property. Additionally the prevalence of multiple paycheck families and multiple families within a single dwelling defies standard economic measurement.

There is a new economic frontier on the horizon. Key Industry abuses of consumer confidence have educated the general public to a more critical level strategic consumption. Real Estate Speculation, Energy Price Manipulation, Out Of Control Health Care Costs, and a "Wall Street Crisis" have raised the consciousness of a more intellectual buying public.

Not even the US Government can influence or predict the focus of Mainstream American Consumers. "Factory Model Education" is being replaced by personal wealth strategies. The increasing number of "Affluent" individuals and families is an economic growth reality independent of "housing starts".

Sound arguments, i totally agree with you. But think about this ...do you believe there are enough already built houses in the US to house every resident? If you answer if no, then it means there is a shortage. What the data does not highlight is the location, state that the new house starts are in. When you think that people in the north east pay 450K for a 3 bedroom house. what if some were to move to the mid west and register house starts for 170K? that is the big deal. for the mid western economy it would be a key economic boost... housing, employment, retal sales, population gain, taxes , etc ... its the multiplier effect of the house starts.

Housing starts indicate the end of a recession and the beginning of the next business cycle.. Looking at past data, housing starts drop sharply in a recession to rebound at the end of the recession. Housing starts is a statistic considered a leading indicator to calculate the Conference Board's US Leading Index, used by the Federal Open Market Committee of the Federal Reserve Banks to determine their interest rate policy.

http://www.visualizingeconomics.com/category/reces...

Reason: Housing is perhaps the most interest-rate sensitive sector of the economy. It often experiences large swings in activity in response to changes in the level of long-term interest rates such as those on mortgages. While residential investment represents just four percent of the level of GDP, due to its volatility it frequently represents a much higher proportion of changes in GDP over relatively short periods of time. Policy makers monitor the housing sector very carefully for clues about the near-term performance of the economy and for the effects of changes in financial conditions.